A new study reveals that the UK's gender pay gap is larger than official estimates because the data used calculate it is not weighted properly to account for jobs in small, young, private sector organisations.
Researchers at UCL, Bayes Business School, the University of the West of England and the University of Stirling reviewed the Office for National Statistics' (ONS) Annual Survey of Hours and Earnings (ASHE), which is used to calculate the UK gender pay gap.
Published in the British Journal of Industrial Relations, the study found that despite efforts to weight the sample to be representative of the breadth of the UK workforce, it had not accounted for higher survey non-responses rate from some types of employers.
Having developed and applied a more representative revised weighting scheme, the researchers re-estimated the size of the UK gender pay gap. They found the gap has been consistently under-estimated over the past 20 years by a small but noteworthy margin of around one percentage point.
This happened because the original weighting under-represented smaller private sector firms, especially for women, and over-represented larger and public sector employers, where pay is generally higher and the differences between men and women within jobs are generally smaller. This underrepresentation was due to smaller private firms being less likely to respond to the ONS's survey.
Despite being a mandatory requirement, on average only 63% of employers responded to the survey between 1997-2019, dropping to just 46% since 2020. The response rate among the largest firms was around 50 percentage points higher than among the smallest firms, and around 15 percentage points higher among public sector employers than private sector.
Co-author Professor Alex Bryson (UCL Social Research Institute) explained: "When we saw the higher non-response rate among some firms, we questioned whether this could be skewing the sample and, therefore, distorting its findings.
""By adjusting the weighting, we accounted for this bias and saw that the UK gender pay gap has been consistently under-estimated for decades."
The study also used the revised weighting to review the mechanisms used to set the National Minimum Wage (NMW) and National Living Wage (NLW).
The researchers found that the government had inadvertently achieved its target of setting a NLW of 2/3rds of median hourly earnings one year ahead of schedule, in 2023. This was because non-response to the survey meant they had over-estimated median hourly earnings. The researchers recommend a review of the ONS's Annual Survey of Hours and Earnings, which collects the data, to improve the accuracy and reliability of its methodology.
Lead author, Professor John Forth (Bayes Business School, City St George's, University of London) said: "The data collected in this annual survey has far-reaching consequences across our society, informing everything from official pay recommendations for doctors and nurses to anti-poverty measures like the National Minimum Wage. It is, therefore, crucial that the data is a true representation of wages and earnings in modern Britain.
""We welcome ONS's recent announcement that they will be conducting a wide-ranging review of methodology behind the Annual Survey of Hours and Earnings. As part of the review, we encourage them to look at how the data can be made more representative of jobs in all types of organisations, so that the issues we observed can be addressed."
The Annual Survey of Hours and Earnings is used by the Low Pay Commission to monitor the impact of the minimum wage and by the Office for the Pay Review Bodies to inform public sector pay settlements. It is also used by the World Economic Forum for international comparisons.
The research forms part of the Wage and Employment Dynamics project and was funded by ADR UK (Administrative Data Research UK) and the Economic and Social Research Council under grant no. ES/T013877/1.
